Mortgage delinquency expected to rise across Australia

Mortgage delinquency expected to rise across Australia

According to research by Moody’s, in six Australian suburbs, no one is 30 days or more behind on their mortgage repayments. Namely, the zero mortgage delinquency suburbs reported by Moody’s are Carlingford, Crows Nest and Mosman in Sydney, Bentleigh and Glen Iris in Melbourne, and Ormiston in Brisbane.

The report by Moody’s also noted that “ten of the twenty postcodes with the lowest mortgage delinquencies in Australia were in Sydney, while six were in Melbourne.” On the other hand, many of the postcodes with the highest delinquency rates belong to areas in Queensland and West Australia affected by falling house prices.

Not surprisingly, a co-relation can be seen between property prices and mortgage delinquency rates. The reason – If your house has risen in value, and you find yourself falling behind your mortgage, it is possible to put the house on the market, pay off your debt, and probably make a small profit, too. However, if the outstanding balance on your loan is more than the value of your property because the property prices have fallen in your area, you are stuck between a rock and a hard place!

Falling house prices and mortgage stress

Currently, most of the lowest delinquency suburbs belong to Sydney and Melbourne, areas that have experienced skyrocketing growth in property prices for the longest time. However, the recent softening of property prices in these areas could be an indicator of future mortgage stress, according to experts.

According to the rating agency, “Softening housing market conditions, particularly in the key states of NSW and Victoria, will drive delinquencies moderately higher.”

Looking at the house price growth, CoreLogic data reports that Sydney house prices declined 1.8 percent in the first quarter of 2018. In Melbourne, property prices fell 0.5 percent over the same period. It is not surprising then Moody’s is expecting a rise in mortgage delinquencies from the current reasonable level of 1.45 percent.

Rising household debt raises concerns

Household debt in Australia rose alarmingly to 188 percent of disposable income in September 2017 as compared to 161 percent in September 2012. Low disposable income makes households vulnerable to market shocks such as sudden rate hikes, making it more difficult to meet mortgage repayments.

So, what can home borrowers do to avoid falling behind their mortgage?

For starters, it makes sense to pay down as much of your mortgage as possible when the interest rates are still low. Apply any lumpsums or windfall gains such as a bonus or tax refund towards your mortgage to reduce the principal and years from your home loan (calculate your savings using this extra repayment calculator). It is also a good idea to review your home loan rate every 12 months and see how it stacks up against the average rate in the market. Currently, if you are paying anything more than three point something per annum on your home loan, you might be paying too much – so, don’t hesitate to ask your lender for a lower rate. You can also consider refinancing to another lender with a more competitive rate. Speak to a mortgage broker to understand your options better.

“Those who are planning to buy a house must determine how much they can afford to borrow rather than borrowing the full amount available to them,” explains Tim, a mortgage broker. What Tim means is that you should not borrow the whole amount lenders are willing to lend to you unless you can comfortably service it. To determine how much you can really afford to borrow, start by calculating your borrowing capacity (use this online calculator) and then check the size of your monthly repayments here. Can you pay this amount comfortably each month without compromising on the basics?

According to experts, you should not put more than 30 percent of your monthly income towards your mortgage repayment. If you commit to a larger sum, chances are, you’d be living under continuous mortgage stress.

Tim adds that while planning your home loan, it is advisable to calculate your monthly repayments at a rate that is at least 3 percent higher than the current average home loan rate. This would help you prepare for any future rate hikes.

A tailored home loan for you

“Choosing the right home loan that is tailored to your requirements can help you plan your finances better,” explains Tim. “In addition to a lower rate of interest, home borrowers must look for additional features such as an offset account and the ability to make extra repayments and redraws that can potentially save them more money over the life of the loan as compared to a vanilla mortgage.”

With HashChing, you can compare hundreds of broker pre-negotiated home loan deals online or speak to a mortgage broker who can help you assess your situation better. Even if you don’t know the exact features you need in your mortgage; our mortgage brokers will listen to your requirements patiently to guide you to the right home loan product at a competitive rate. Speak to an expert here.